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May 01, 2006

May Day

May Day, the worker’s celebration. The day when the happy proles remember those who helped then cast off their shackles and then hope for more of the same to occur in the future.

Slightly disappointing that they never quite celebrate what it is that has actually led to the progress in the last few centuries: markets.

So Harry’s Place has a nice woodcut of the International Solidarity of Labour. Lenin still seems to think that Marx is relevant in some manner of other (well, yes, you see, Marx did support free trade but that was just a cunning plan ...Marx as Baldrick to Engels’ Blackadder perhaps?) and no doubt there are others out there getting away from the serious business of maidens and Maypoles to look back with nostalgia on eras gone by, when there was solidarity, when the proles hadn’t been seduced by the promises of consumer capitalism and could be relied upon to cough up their union dues.

As I say, it’s a pity that none of these people will actually recognise, let alone celebrate, what it is, the one single thing, that has led to the enrichment of that very working class over recent centuries. Which is, as I say above, markets.

The inevitable immiseration of the working classes, caused by the reserve army of the unemployed so beloved of Marx, could of course have happened. Empirically we can see that it hasn’t, but it could have, if capital had been able to impose their will upon labour. So the interesting question is, why didn’t it?

For it to have happened we would have needed what economists call a "monopsony". That is, a single buyer for a product, in this case a single buyer for labour. This has in fact happened at times and in places. In capitalist societies the company town would be a good example. Wages really were set by a single capitalist and dependent upon their whim they could be low (often) or high (the Quaker capitalists like the Frys, Cadburys and so on). There are other examples as well of course. The Soviet Union comes to mind, where the State was the arbiter of what wages would be. It is well known that such wages were arbitrarily held down so as to increase the investment surplus available...sometimes going so far as to jail innocents in work camps to do so more efficiently.

In our own country and time we can see it in schoolteacher’s wages. Clearly they are not high enough to attract people into the job in certain parts of the country, nor to attract those with certain skills (physics, maths) into it at all. Why? Because we have, in essence (no, not completely, but close) a monopsonistic buyer, the Department of Education. Wages are set centrally and lead to gross shortages. It’s easy enough to find an arts graduate to teach in a reasonable (and cheap) area of the country (after all, there are only so many jobs that include "you want fries with that"), almost impossible to find a science one to teach in an expensive area. Tricks are tried at the margin, allowances, signing on bonuses, but the one thing that would solve the problem at a stroke is verboten: a market.

If each school were to pay the wages it needed to to attract the teachers it desired then there would be no shortage. It could well be that schools in cheaper parts of the country would pay less than those in more expensive areas. That skills in short supply would see wage increases while others (meeja studies? Comparative feminism?) fall, possibly even find no market at all.

But the very fact that we have a shortage of skilled teachers is evidence that wages overall are too low. And the way to solve this is to have a market, to get rid of the monopsony, and have multiple employers competing for the skills on offer. For when such skills are in short supply those multiple employers have to bid up wages in order to attract the labour they desire.

And this is why that immiseration of the proletariat didn’t happen. Because there is no such thing as "capital" that hires "labour". There are indeed "capitalists" who hire labour but they are not in competition with labour at all. They are in competition with each other for access to that necessary labour.

Which is why as the productivity of labour rises so does the amount paid to that labour rise, as it has done for the past two centuries and more.

It all just happens you see, it’s the way the world actually works. Free markets make us all richer all the time. Note, please, that "free" in there. We do indeed have to be vigilant about encroachments upon that free part. The creation of monopolies over the supply of an item, whether it be labour, capital, land, goods, whatever, need to be guarded against. As do the creation of their counterpart, monopsonies, single buyers for an output such as labour.

As long as we have competetive suppliers and competing buyers then we will indeed all continue to become richer, increase our ability to satisfy our wants and desires which is the very thing that should be celebrated today, that the workers, that’s us, are, as we have been, becoming both richer and freer.

Would be nice to see a banner in one of those marches today that actually recognised this fact. You know, something that actually acknowledged the truth: "Markets Make Us Rich" perhaps?

No, I’m not holding my breath either.

Update. You also want to go and read this from Catallarchy, a series of articles on all of the wonders that communism did for us.

Contrary to the promises of ideology, nations whose governments pledged to create a workers’ paradise usually became places of rampant slave labor. The plight of the less fortunate became even less fortunate. Today, we chronicle a small part of their lives.

May 1, 2006 in Idiotarians | Permalink

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Comments

"but the one thing that would solve the problem at a stroke is verboten: a market."

What you mean is it would remove the problem at a stroke, which is not quite the same thing. It would do that because the 'right' amount would be defined as 'the amount the market provided', hence there could not be a 'shortage'.

There's no a priori reason to believe however there would be more teachers than there are now, there might be less.

Posted by: Matthew | May 1, 2006 12:10:37 PM

May Day, the worker’s celebration

Sing along,, Comrades!!

Posted by: Tim Newman | May 1, 2006 12:43:45 PM

Matthew,

Can you possibly explain how there might be less, unless of course, there was less demand.

The bottom line is that if there is a shortage of people, and that there is a reasonably low bar to entry, then people will fill it.

I saw it first hand during the dot-com boom. People were earning fantastic salaries as programmers, so lots of people decided to learn programming. In fact, it saturated the market a few years after.

Posted by: Tim Almond | May 1, 2006 1:10:14 PM

"...a reasonably low bar to entry..." Aye, there's the rub.

Posted by: Backword Dave | May 1, 2006 1:25:42 PM

"Can you possibly explain how there might be less, unless of course, there was less demand."

Let me think. Hang one - there might be less demand?

Posted by: Matthew | May 1, 2006 1:47:50 PM

Markets make us all richer? All the time? That’s simply not true, Tim. Let’s take some recent examples. Few factory workers in Asia got richer during the currency crisis of 1997. And for the Russian working class, the shock therapy years of the early 1990s meant a drop in life expectancy.

You go on to emphasise the ‘free’ side of the term free market, so perhaps you think such examples don’t really count. So consider 1970s Chile. Pinochet and the Chicago Boys systematically set about bringing textbook models of neoliberalism to life, with some success. Here was the free market society par excellence. I don’t have income distribution stats to hand. But I doubt you would have wanted to live there.

Perhaps you inadvertently overlooked the need explicitly to include democracy in your prescription? Perhaps you are generalising from the US case? Even that doesn’t help your argument.

Real wages for US workers fell consistently over more than two decades from the early 1970s to the mid 1990s. Although they have once started to rise, they are no higher in real terms than they were in the 1960s.

There’s no point in denying that markets have raised living standards for hundreds of millions of people for extended periods. But such gains are not secure. Capitalism is cyclical by its nature. There will be future world recessions. We’ll see how durable the advances are then.

Tim adds: Your Chile example confuses absolute and relative wealth. If we are talking about absolute there is no need to look at the distribution stats is there?

"Real wages for US workers fell consistently over more than two decades from the early 1970s to the mid 1990s."

That is complete nonsense. The most appalling bollocks.

You’re welcome to try and find the statistics to back it up (yes, the statistics, not an assertion by someone else) but you won’t find them because they don’t exist.

As someone who actually lived in Russia throughout that shock therapy period I most certainly wouldn’t consider it to be a time of free markets. We spent almost all of our time fighting bureaucracy.

Posted by: Dave O | May 1, 2006 2:17:59 PM

One of the regrets of my life was that I wasn't taught physics by a physicist until I reached Uni. Markets might - indeed probably would - have cured that, but national pay rates, brothers, didn't.

Posted by: dearieme | May 1, 2006 2:55:10 PM

And for the Russian working class, the shock therapy years of the early 1990s meant a drop in life expectancy.

The shock therapy was less to do with the intorduction of markets than the collapse of communism, therefore the lesson is not that markets should not be introduced, but communism never started in the first place.

Posted by: Tim Newman | May 1, 2006 3:28:36 PM

Tim
US wage stats - I'm citing a bar graph from David Harvey, 'Brief History of Neoliberalism', p.25. And you? Anything more assertion?

Tim adds: tsk: We’re online so we should be using online sources that others can check, should we not? I actually wrote a whole article about it here:
http://www.tcsdaily.com/article.aspx?id=011206D
The only statistic that shows real wages falling over anything but the shortest of timescales is the one for the arithmetic average of weekly income. However, that does not show the average of full time workers. It shows the average of all workers. As you may have noticed, since the 1960s, there’s been something of a change in the composition of the workforce. Lots of women have entered it, for example, many of them working part time. If we move from (these aren’t correct numbers, just an example) a position of 100% full time workers to one of 50% full and 50% part, then the average weekly income as calculated will fall, won’t it? But that tells us nothing at all about the average weekly income of those in full time work. Which is why that particular measure of income is being dropped by the BLS.

Basic fact. Apart from short term pertubations (a year or two around a severe recession etc) and insane activities like Zimbabwe recently, wages rise faster than inflation: that is, real wages rise.

If this were not so then why would we be having arguments about tying the old age pension to prices or to wages? If wages were rising slower than prices (ie, real wages falling) then pensioners would be getting relatively richer, not relatively poorer, given the link to prices, now wouldn’t they.

All the links you need to understand this are in the article.

Posted by: Dave O | May 1, 2006 3:53:36 PM

"Tim adds: tsk: We’re online so we should be using online sources that others can check, should we not? "

Off topic - are any nearer to finding evidence for your claims that 305 to 50% of state education spending goes to LEAs?

Posted by: Matthew | May 1, 2006 6:43:51 PM

Ahem:

"As the US economy was becoming increasingly globalized, the gap widened between the wages paid to more-skilled and less-skilled workers as measured by educational level. In 1979, for example, male college-educated workers earned 30 percent more than their high school-educated counterparts. By 1995 the premium for college-educated workers had risen to about 70 percent.

"The effect of this increasing wage disparity among American workers has been compounded since 1973 by a fall in average real wages. US average real weekly earnings peaked in 1973 at nearly $320. They then fell to under $260 by the mid-1990s and recovered to only $280 last year [2000]"
http://www.iie.com/publications/papers/paper.cfm?ResearchID=408


Tim adds: That’s the same guy who wrote the other paper. Using the same figures that I don’t believe.

Posted by: Bob B | May 1, 2006 10:06:24 PM

"The effect of this increasing wage disparity among American workers has been compounded since 1973 by a fall in average real wages. US average real weekly earnings peaked in 1973 at nearly $320. They then fell to under $260 by the mid-1990s and recovered to only $280 last year [2000]" is asserted in an address by an IIE economist. Unfortunately, (1) there is no reference (that I can find) to the statistics on which this assertion is based, and (2) Tim has dealt with the possibility that changes in the market will affect computatiions of average real wages.

Posted by: Umbongo | May 1, 2006 10:42:23 PM

C'mon, try:
http://www.iie.com/publications/chapters_preview/109/4iie2924.pdf

"Since the end of World War II, real wages for production workers have risen by more than half. Most of this growth occurred, however, in the 1950s and 1960s. After reaching a peak in 1973, real hourly earnings for production workers either fell or stagnated for two decades. During 1996–1998, growth in hourly earnings resumed, accelerating to over two percent in 1998."
http://www.dol.gov/asp/programs/history/herman/reports/futurework/report/chapter2/main.htm

See the charted plots of men's and women's annual earnings 1951-92 in constant US Dollars:
http://permanent.access.gpo.gov/lps49666/wagegap2.htm

"No recent development in the US labor market has been more dramatic and troubling than the collapse in the buying power of workers’ paychecks. In 1973, after rising for almost three decades, average real (inflation-adjusted) earnings of US workers began to decline. Average hourly earnings of production and nonsupervisory workers fell by 15 percent, from $13.89 in 1973 to $11.82 in 1996 (both in 1996$).1 In other words, average workers earn less now than their counterparts did several decades ago. Though wages now are rising very slowly, they have yet to return to 1980s levels, much less those of the 1970s."
http://www.njfac.org/us13.htm

Etc.

Posted by: Bob B | May 1, 2006 11:53:44 PM

Actually, the lack of US income growth has rather shocking consequences that essentially tip over the whole article here.

Becker & Gordon's NIBR research paper asks where all the growth has gone, since it hasn't gone into median income growth (except for a small tip up in the late 90s).

“Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income.” NBER Working Paper no. 11842, December 2005

http://www.brookings.edu/es/commentary/journals/bpea_macro/forum/200509bpea_gordon.pdf

They conclude:

"Over the more recent 1997-2001 period in which productivity growth accelerated,
fully 49 percent of real income gains were earned by the top 10 percent of the income
distribution.

Another way to state our main results is that the top 1 percent of the income distribution
accounted for 21.6 percent of real total income gains during 1966-2001 and 21.3 percent during
the productivity revival period 1997-2001, again excluding capital gains. Still another and
perhaps even more stunning way to describe our results is that the top one-tenth of one percent
of the income distribution earned as much of the real 1997-2001 gain in wage and salary income,
excluding nonlabor income, as the bottom 50 percent."

I actually find there paper one of the most radical i've ever read.

See also, the economist article:

http://www.economist.com/finance/displaystory.cfm?story_id=5468383

Posted by: Barry Brown | May 13, 2006 4:07:02 AM